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ADB: Soaring food prices may push millions into poverty

April 27, 2011

Written by Joseph Chin of theedgemalaysia.com

Tuesday, 26 April 2011 13:07

The EDGE

KUALA LUMPUR: The Asian Development Bank (ADB) says resurgent global food prices may push millions of people in developing Asia into extreme poverty and raised the urgency to calm speculation in food markets.

In its report “Global Food Price Inflation and Developing Asia” on Tuesday, April 26, it said food price, which posted record increases in the first two months of 2011, was a serious threat in Asia.

“Food prices had been expected to continue a gradual ascent in the wake of the sharp spike in 2008,” it said.

The report said there was also a need to calm speculative activities in food markets. It recommends enhanced market integration, and the elimination of policy distortions that create hurdles in transferring food from surplus to deficit regions.

Fast and persistent increases in the cost of many Asian food staples since mid-2010, coupled with crude oil reaching a 31-month high in March, are a serious setback for the region which has rebounded rapidly and strongly from the global economic crisis.

Domestic food inflation in many regional economies in Asia has averaged 10% in early 2011.

A 10% rise in domestic food prices in developing Asia, home to 3.3 billion people, could push an additional 64 million people into extreme poverty based on the US$1.25 a day poverty line.

“For poor families in developing Asia, who already spend more than 60% of their income on food, higher food prices further reduce their ability to pay for medical care and their children’s education,” said ADB chief economist Changyong Rhee. “Left unchecked, the food crisis will badly undermine recent gains in poverty reduction made in Asia.”

If the global food and oil price hikes seen in early 2011 persist for the remainder of the year, economic growth in the region could be reduced by up to 1.5 percentage points, the report said.

In the short term, the pattern of higher and more volatile food prices is likely to continue the report says, noting that grain stocks have fallen. Adding to this are structural and cyclical factors that were at play during the 2007 to 2008 crisis including rising demand for food from more populous and wealthier developing countries, competing uses for food grains, shrinking available agricultural land, and stagnant or declining crop yields.

The report notes that production shortfalls caused by bad weather along with the weak US dollar, high oil prices and subsequent export bans by several key food producing countries have caused much of the upward global price pressure since last June, with double digit increases seen in the price of wheat, corn, sugar, edible oils, dairy products and meat. Rice prices are likely to continue their uptrend as the effects of La Niña persist, prompting consumers to seek less costly and less nutritious substitutes.

“To avert this looming crisis it is important for countries to refrain from imposing export bans on food items, while strengthening social safety nets,” said Dr Rhee.

“Efforts to stabilise food production should take centre stage, with greater investments in agricultural infrastructure to increase crop production and expand storage facilities, to better ensure grain produce is not wasted.”

Asian governments have already taken many short term measures to cushion the harsh impacts of food price inflation, including measures to stabilise prices. However rising demand for food from developing Asia and low food productivity mean policymakers must also focus on long term solutions to avert a future crisis, the report says.

The report says there is also a need to calm speculative activities in food markets. It recommends enhanced market integration, and the elimination of policy distortions that create hurdles in transferring food from surplus to deficit regions.

It also notes that cooperation between Asian nations can help better secure food supply for the region’s people. The Asean Integrated Food Security Framework, under which the 10 member Asean group of countries has agreed to establish an emergency regional rice reserve system, is a positive step in that direction.